Victoria is willing to continue negotiations after changes to the Murray-Darling Basin Plan were sunk in Canberra.
Premier Daniel Andrews told reporters on Thursday he was disappointed with the scuttling of the water distribution changes in the Senate, but his government would work with Canberra to find a solution.
"It's now for us to work with the Commonwealth government to find a way forward and that does appear difficult," he said.
"What happened in the Senate last night was a very disappointing outcome for communities, for irrigators and indeed for the environment."
The federal government's proposal to adjust water distribution at the basin was shot down by the Greens and Labor on Wednesday, leaving some states angry.
Victoria was one of the states hoping to get a better deal for its farmers and irrigators if the changes went ahead.
The Turnbull government was trying to reduce the amount of water being returned to the environment in the 'upwater' states to support farmers and industries in those regions.
Mr Andrews' preparedness for further negotiation followed comments by the state's water minister, who said the Senate vote means the Murray-Darling Basin Plan is "over".
"We said if these motions get disallowed the plan is over. It's not walking away, the plan is over," Water Minister Lisa Neville told ABC Radio on Thursday.
The minister explained that she was angry, and was standing up for Victorian communities who are doing it tough.
"I'm not willing to get rid of our dairy industry and our horticultural industry," she said.
Victoria's stance has angered South Australia, a 'downwater' state, which has accused them of never being really committed to the full Murray-Darling Basin Plan.
Australian Associated Press